>> this week on the journal editorial report. if you thought democrats were done raising your taxes, think again. the president and his allies in congress are planning their next big tax increase. we'll tell you what's on the table. plus, president obama unfettered, what his treasury pick and national security team say about the president's world view and his agenda for the the next four years. welcome to the journal editorial report. i'm paul gigot. that didn't take long, fresh off the biggest tax increase the country has seen the last 20 years. the democrats are planning their next revenue grab. mitch mcconnell declared the

tax issue over this week, saying it's now time to focus on washington's spending program. but president obama insists any cut must be be accompanied by more tax revenue. and mouse minority leader nancy pelosi says future tax hikes are not off the table. >> the president had said originally he wanted 1.6 trillion in revenue and he took it down to 1.2 as a compromise and this legislation will get 620 billion dollars, very significant, high end tax, changing the high end tax rate to 39.6%, but that's not enough on the revenue side. >> paul: joining the panel, dan henninger, editorial board member, mary anastasia o'grady and kim strassel. kim, before we get to the next tax increase, i want to inform our viewers about the stealth tax increase, eliminating some

deductions and exemptions for taxpayers above $250,000, not $400,000 as the advertising and political spill on this deal suggested. how did this happen? >> it was stuffed in there. it was a revenue grab by democrats, just a little taste, paul, of what they would like to do in terms of further closing deductions and loopholes for the the wealthy. but the the technical term for these, they phase out the ability of deductions for higher income taxpayers. and as you said came in as a much lower threshold than the marginal income tax heights. thrown in there dead of night and something that democrats demanded and managed to add to the amount they can claim in revenue. >> paul: but 150 billion of taxing 620 million tax increase are going to come from the provisions. >> exactly. >> paul: and a lot of

taxpayers will have a surprise next april. here is the question, we had the big tax increase, it's significant. the president won, let's face it, he got what he wanted. so, why do we need more revenue? i thought this was going to solve the deficit problem? >> paul, if you look at 2011, irs statistics about 2% of the u.s. households earn $250,000 a year or more. if you took all of their income, you would run the government for less than half a year. all right, there's just no-- >> on every dollar they earn? >> exactly. and there's just not enough money in the rich to pay the bills that we have. and so, you know, i think howard dean has admitted this, many people who are democrats, who are outside of elected office have admitted this and we all know that, you know, eventually they're going to go after the middle class and it says, one of the ways they've already decided to do this is going, using the, limiting deductions and in fact, i

should add that people earning, couples who earn 130,000 each, individually, fall into this category where they start to lose deductions. this isn't particularly rich, particularly in you live in new york. >> if they're joint filers, over $250,000 threshold and when it begins to phase out. dan. >> paul, the democrats believe this generation of democrats believe that over the last 40 or 50 years the united states made all of these social commitments to the population, social security, medicare, medicaid, now obamacare. >> paul: well, we have. >> and we have. and they think, the conventional wisdom shall the simpson-bowles type argument is, we can't afford this, that out 25 years from now, all of our taxes will be going to pay for these things. the obama democrats believe we made these commitments and we have to find a way to pay for them. they do not want to cut the spending. and so, u.s. spending, which has been about 20% of gdp

since 1969, i think, they're trying to get it up to around 24 or 25% of gdp. we keep repeating this number, but in a 15 trillion dollar economy, every percent of gdp is a tremendous amount of spending. but tax revenue, the last three years, has been down around 16% of gdp. that's a tremendous gap. and they want to raise taxes to close that gap. >> but part that have reduction, no, normally, it's about 18, 18 1/2, and it's popped up under bill clinton's presidency above 20%, if you have economic growth. the 16% is because the growth-- >> their policies are going to guarantee, in my opinion, 2% growth for a long period of time. they will never get tax revenue back up towards 20%. >> paul: kim, let's talk about another tax that's on the table. dick durbin, the number two democrat in the senate this week said raise the prospect of an energy tax in addition

to this and this reflects part of the point that mary made, you can go after the rich under the current tax, but you can't begin to finance the government we have. so ultimately you've got to find new ways to get the revenue. is this energy tax actually going to be a live prospect in the next couple of years? >> oh, they're going to try it and i think we all owe dick durbin a degree of thanks for what they want to do. mary says you can go after everybody who is rich, you can't get it, you have to go up through the middle class. the problem for democrats they vowed they're not going to raise income taxes on the middle class. instead what you have to do, you have to go off a product essential to everyone's life, everyone uses energy, tax energy, gas, oil and heating for your home. this would be a huge hit for the economy. could do it under the guise of an environmental tax, but it's the quickest and easiest for

them a way to slip a broader tax on the middle class into the discussion. >> paul: how should republicans respond to this? >> this is what happens when you have politicians who never think about growth, as dan was saying. i think the way they should respond to it is a larger economy needs more revenue for the government and more jobs for people and more prosperity and a happier society, and-- >> what about training and energy tax for lower income taxes, dan? >> i think that's probably, they'll do something like that. a carbon tax, i would think maybe in return for lowering payroll taxes. >> you're saying the democrats will propose this or-- >> carbon taxes are extremely unpopular politically and remember, bill clinton's 1990 btu tax and some said he lost the house in 1994 because of that. >> when we come back, president obama unfettered from his new national security team, to his pick of jack lew as treasury secretary. what the president's cabinet makeover says about his plan for the next four years.

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>> jack knows every number on the page, every dollar we budget, every decision we makes has to be an expression of who we wish to be as a nation. our values. >> paul: that was president obama thursday nominating white house chief of staff jack lew as the next treasury secretary replacing tim geithner set to step down at the end of the month. so, kim, tell us about jack lew, who is he? what does he believe? >> well, he's mostly, i think, this is important, a creature of washington. he had a brief interlude out at citigroup, but a lot of time working in a political capacity and does in fact make him a much different creature for a position like the treasury secretary than we have in the past, folks who have come from that often out of the business world, established economists, might

come from the fed. this is a person viewed by congress and many, by many people here in washington a more of an ideologue. >> and with the clinton administration, i know republicans thought he was an honest liberal, anybody he's emerged under this president as much more implacable. and mr. lew makes a lot of appearances, almost always in the role, when you see mr. obama and boehner making progress. he throws the monkey wrench and pretty much tanking the negotiations and makes him poison for republicans and a problem in his capacity as treasury secretary which sometimes does need to work with congress. >> paul: very different choice than treasury secretary.

remember reagan had don regan first and jim bakker, and bob ruben of goldman sachs. this is a washington oriented pick. >> one of the things i find troubling about jack lew not so much his ideological east lansing are obviously going to reflect those of the president, but the treasury secretary should have a vision of what the largest economy in the world wants to do. >> paul: still. >>, but wants to do in terms of a vision, an international vision and jack lew has a, basically experience, keeping the books. even when he was at citibank, you know, his job was sort of an operations manager, even though he got a huge bonus right on the heels of the big bailout, but he doesn't have the experience of someone who

could lead in terms of the u.s. economy, its role in the world, on the international stage, i find that troubling. but barack obama is not thinking in any sense in traditional ways about the treasury secretary or these ideas about the economy. to them, the economy is a kind of concede his job is to send revenue to washington. and they have argued that lew's expertise in fiscal matters is what we need right now, not expertise in marketing. >> paul: because he was a budget director-- >> right, because our problems are fiscal problems right now and i think that essentially what barack obama has here is not the treasury secretary who represents the economy or wall street, but he would call him a treasury secretary for the middle class. in other words, he's part of this much more populous middle class idea that obama is pushing right now and i think that's what lew's job's going to be, to help obama. as i said in the previous segment, get spending up to this level that needs to

support the middle class. >> paul: here is what i always think it means. the grand bargain, the grand budget bargain is dead. there will not be, tax reform for the the next two years, probably dead. what we're going to have is trench warfare and on spending, fight after fight after fight and really no bipartisan agreement and jack lew is the kind of guy you pick if you want him to be basically your trench warfare general. >> and the not much discussion about growth. >> paul: no, i don't think so. all right, when we come back, the president's national security team is also getting a makeover. and at least one of his picks all, but guarantees a confirmation fight. what the hagel hearings will tell us about foreign policy in a second obama term next. plus a 50% annual bonus. and everyone but her likes 50% more cash, but i have an idea. do you want a princess dress? yes. cupcakes? yes. do you want an etch-a-sketch? yes! do you want 50% more cash? no. you got talent. [ male announcer ] the capital one cash rewards card

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>> some other big cabinet

announcements this week, with president obama nominating former nebraska senator chuck hagel as defense secretary and white house counterterror chief john brennan to run the cia. the two join last month's choice, massachusetts senator john kerry, to replace hillary clinton as secretary of state. we're back with dan henninger, wall street journal foreign affairs breath stevens and matt comiskey joins the panel. and matt, we had leon panetta, bob carey and hillary clinton as secretary of state. and very different choices in mindset and stature than these three. what defines this new team. i think it's pretty much defined by a couple of things. much more dovish, should america be involved in the world beyond, how assertive should we be. chuck hagel throughout his

career in the senate and afterwards. almost a viewpoint that we-- >> despite being a republican. >> absolutely, and i think that's what's misleading here in a way. he doesn't agree with the mainstream republican party, he's being put forward as a bipartisan sort of pick, but throughout his time in public office he says we cannot shape events overseas and we shouldn't get embroiled in the problems in the middle east or challenge russia or china on human rights or democracy and i think that john kerry is pretty much the same way. >> paul: right. >> different from hillary clinton who has at times been much more hawkish. >> paul: the white house would say, john brennan led the counterterror effort inside the white house that's gone effectively after osama bin laden and awlaki and terrorists around the world and don't keep the isolationist business on us, that's not fair. >> i think in the case of brennan that's not a controversial pick. you can have your quibbles

with a number of things that brennan has done in his career, alleged to have done, but i think as cia picks go, he's a fairly solid pick. the real issue with chuck hagel. it's not entirely true that hagel always has a contrarian profile. there's a great deal of political opportunism and 1997, the bird hagel amendment, adamantly opposing the-- >> the global warming. >> exactly. >> paul: agreement. >> in 1998, it was one of the republicans pushing bill clinton to deploy ground troo troops. but it's true in the last eight or nine years he's developed a dovish persona. not just to the left of the republican party, but putting him to the left of president obama's own stated positions when it comes to countries like iran. >> paul: really? >> well, i guess a lot of people would say, well, fine, this reflects these choices

reflect president obama's world view. he won the election, shouldn't he get those choices? >> well, perhaps, except that his world view includes, i'm convinced, the idea that spending on defense has got to fall and that that money has to be reprogrammed into domestic spending. the defense budget is 600 billion dollars more or less and post war, 5% of gdp and conservatives argue it should now be about 4% of gdp. i think that chuck hagel's job is to start pushing that number downward and that's because barack obama wants it to fall after iraq, after afghanistan and then the democrats want for 25 years to spend that money on domestic education and energy. >> and of course the europeans discover you can only take so much money from defense and put it into the entitlement. >> they believe that. >> and eventually you end up bankrupt and defenseless. the europeans can afford that because they have the americans behind them. who do we have behind us? >> right, but here is the question that i have politically, the president

knows because this was floated and you've written two critical columns about chuck hagel and a lot of other people have as well. some republicans have come out and said they won't support him. chuck schumer, the new york democrat said well, i want to hear his record and he hasn't come out and said he'll vote for him. so, why would the president's court a confirmation fight in this manner? >> you know, i actually think there's a psychological element. he wanted susan rice as secretary of state. >> u.n. ambassador. >> u.n. ambassador, and she was heavily criticized by various others and she withdrew her name and i think he was simply determined that he wasn't going to be pushed around again, that he was going to pick hagel and also he has a friendship with hagel that goes back. >> paul: to the senate days. >> for several years so i think it -- a lot of these decisions aren't just simply ideological or policy decisions, there's a personality. >> paul: do you think he wants a fight? >> i think he's had a fight, probably fight that he thinks he can win and calling over to

the senate and house both. what is striking to me as well, hagel doesn't have experience in what he's tasked to do, running the pentagon. president obama involves we're not getting involved in syria or push too hard, his main job is to run pentagon. >> he was enlisted in vietnam, and distinguished service, two purple hearts and knows what it's like to be an enlisted man and fighting on the ground and have those people foremost in his mind. >> no one questions his courage or his record, but running the department of several million people and 550 billion dollar budgets, and he has never served armed servi services in the nate and never run anything as big as the pentagon and he's presumably someone the white house thinks is going to do what the white house wants him to do and leon panetta and bob gates before

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>> time now for hits and misses of the week. kim, first to you. >> paul, a big miss to vice-president joe biden's announcement this week that president obama may use an executive order to enforce gun control in this country. the only reason the president would be considering doing this because he knows there is a big bipartisan coalition of republicans and democrats representing their constituents who firmly oppose such measures. congress has always been the place to regulate guns and the public deserves at least that much oversight and debate on an issue that the supreme court has said is a constitutional right. >> paul: okay, kim, matt? >> and a hit to florida senator marco